On-chain Token Economy Management
Why do you need to actively manage your on-chain token economy?
Every crypto project that mints a token on-chain and lists it on a decentralized exchange (DEX) must actively manage its on-chain token economy to ensure sustainability, stability, and alignment with its goals. In order for tokenomics design, treasury management, and market-making to not adversely affect the token’s price and interests of the project and token holders a holistic unified in-house approach has to be adopted.
1. Dynamic Market Conditions Require Adaptive Strategies
Volatility and Liquidity Challenges: Crypto markets are highly volatile, and liquidity can evaporate quickly. Passive strategies (e.g., static liquidity pools) expose projects to impermanent loss (IL) and inefficiencies. H20’s dynamic spread strategies and auction-based DCA allow projects to adapt to price swings, manage slippage, and maintain liquidity during both pumps and dumps.
Token Unlocks and Supply Shocks: Projects with vesting schedules, airdrops, or token unlocks face sudden increases in circulating supply. Without active management (e.g., algorithmic liquidations or accumulation strategies), uncontrolled selling pressure can crash prices. H20’s strategies programmatically manage supply increases to mitigate adverse impacts.
2. Sustainable Treasury Growth and Revenue Generation
Reinvesting Profits into Ecosystem Health: H20’s self-sustaining market-making strategies uses liquidation profits to fund buybacks and liquidity provision, stabilizing prices and growing the treasury. Without active reinvestment, projects risk depleting reserves during downtrends.
Algorithmic Treasury Management: Strategies like risk-mitigated accumulations ensure treasuries work with their market during price surges (e.g., selling into pumps) while accumulating during dips (e.g., cascading buybacks during dumps).
3. Community Engagement and Liquidity Efficiency
Active Liquidity Incentives: Static liquidity pools (LPing) often fail to engage communities due to IL risks. H20’s dynamic incentivized strategies (e.g., auction-based DCA, grid trading, swing trading) allow token holders to participate profitably, boosting trading volume and liquidity depth.
Reviving Low-Liquidity Environments: Projects with dwindling volume can deploy strategies like auction-based DCA and dynamic spreads. H20 delivered a 20% volume uplift off the back of only an 8% increase in liquidity achieving 2.5x efficiency compared to traditional DEX pools.
Attract traders, and reigniting activity without the project relying on external market makers.
4. Alignment with Long-Term Tokenomics
Customizable Launch and Maturity Strategies: Projects need tailored approaches for different lifecycle stages. At launch, H20’s TGE treasury establishment strategies ensure fair price discovery and liquidity bootstrapping. During maturity, peg management or correlated asset market-making sustains stability.
Handling Regulatory and CEX Risks: Projects delisted from CEXes (e.g., due to jurisdictional issues) can replicate CEX-style trading on-chain using H20’s strategies, retaining community access and liquidity.
Active on-chain token economy management is critical because passivity leads to inefficiencies, centralization risks, vulnerability to market shocks and ultimately a dead market. By leveraging programmable strategies (e.g., dynamic spreads, auction-based DCA, and sustainable buyback loops), projects can maintain price stability, grow treasuries, engage communities, and uphold DeFi principles—all while retaining full custody and transparency. H20’s case studies demonstrate that even projects with minimal liquidity can transform volatility into opportunity through active, algorithm-driven stewardship.